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FNCE > Quiz 1 Review > Flashcards

Quiz 1 Review Flashcards

1
Q

Intrinsic Value

A

theoretical internal value a person puts on an item

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2
Q

Market Value

A

the price that a buyer and seller agree to exchange

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3
Q

Theoretical value

A

to be willing to make a transaction, the buyer and seller decide the appropriate price

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4
Q

Goal of Financial Management

A

maximize the market value of the firm

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5
Q

Capital Budgeting

A

evaluates the size, timing, and risk of future cash flows

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6
Q

Capital Structure

A

the mixture of a firm’s debt and equity

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7
Q

Working Capital Management

A

management of the day-to-day finances of the firm (current assets and liabilities)

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8
Q

Goal of the Firm

A

maximize shareholder wealth in an ethical manner

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9
Q

Decision Rule for Managers

A

only take actions that are expected to increase the share price

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10
Q

Stakeholder Focus

A

a firm avoids actions that would prove detrimental to stakeholder (considered socially responsible)

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11
Q

Business Ethics

A

the standards of conduct or moral judgement that apply to persons engaged in commerce

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12
Q

Ethics programs seek to:

A

reduce litigation and judgement costs, maintain a positive corporate image, build shareholder confidence, and gain loyalty and respect of all stakeholders

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13
Q

corporate governance

A

the rules, processes, and laws by which companies are operated, controlled, and regulated

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14
Q

principal-agent relationship

A

an arrangement in which an agent acts on the behalf of a principal (ex. shareholders of a company elect management to act on their behalf)

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15
Q

agency problem

A

arise when managers place personal goals ahead of the goals of shareholders

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16
Q

agency costs

A

arise from agency problems that are born by stakeholders a represent a loss of shareholder wealth

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17
Q

management compensation plas

A

strengthen corporate governance by ensuring that managers’ interest are aligned with those of shareholders

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18
Q

incentive plans

A

management compensation plans that tie management compensation to share price

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19
Q

performance plans

A

tie management compensation to measures such as earnings per share or growth in EPS

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20
Q

sole proprietorship

A

a business owned by one person

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21
Q

SP advanatges

A

easily established, minimal organizational costs, keep all generated profits

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22
Q

SP disadvantages

A

unlimited liability, losses absorbed by owner, limited capital, limited life, profits are taxed as personal income, obtaining additional equity is dependent on the owner’s personal finances

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23
Q

General Partnership

A

a partnership in which all owners share in operating the business and in assuming liability for the business’s debt

24
Q

GP Disadvantages

A

unlimited liability, must be dissolved or reorganized if a partner leaves or dies, each partner is liable for the total debts of the partnership

25
Q

GP Advantages

A

minimal organizational requirements, negligible government regulations

26
Q

Limited Partnership

A

a partnership with one or more general partners and one or more limited partners

27
Q

LP Advantages

A

limited liability, losses limited to capital invested

28
Q

LP Disadvantages

A

Not active in management, less favorable allocation of ownership/profit/losses

29
Q

Limited Liability Corporation

A

a hybrid form of business enterprise that offers the limited liability of the corporation but the tax advantages of a partnership

30
Q

LLC Advanatges

A

limited liability, no double taxation

31
Q

LLC DIsadvantages

A

relatively new (some legal issues not yet defined)

32
Q

Corporation

A

a business owned by stockholders who share in its profits but are not personally responsible for its debts

33
Q

Corporation Advantages

A

limited liability, permanency, transferability of ownership, better access to capital, able to raise larger sums of equity capital, expansion potential

34
Q

Corporation Disadvantages

A

double taxation, time and cost of incorporations, separation of ownership and management (agency problem)

35
Q

Factors affecting value of company and stock price

A

size, timing, and risk of cash flows

36
Q

secondary market

A

market for reselling financial assets

37
Q

time series analysis

A

evaluation of the firm’s financial performance over time using financial ratio analysis

38
Q

Cross-Sectional Analysis

A

the comparison of different firm’s financial ratios at the same point in time

39
Q

DuPont System of Analysis

A

used to dissect the firm’s financial statements and to assess its financial condition by merging the income statement and valance sheet into two summary measures of profitability

40
Q

Financial Leverage Multiplier (FLM)

A

the ratio of total assets to common stock equity

41
Q

ROE =

A

ROA * FLM

42
Q

ROA =

A

Net profit margins (NPM) * Total asset turnover (TAT)

43
Q

Current Ratio =

A

Current assets / current liabilities

44
Q

Quick Ratio =

A

(current assets - inventory) / current liabilities

45
Q

Cash Budget/Forecast

A

a statement of the firm’s planned inflows and outflows of cash that is used to estimate its short-term cash requirements

46
Q

Sales Forecast

A

a prediction of future sales activity during a given period, based on external and/or internal factors

47
Q

External Forecast

A

a sales forecast based on the relationships observed between the firm’s sales and certain key external economic indicators

48
Q

Internal Forecast

A

a sales forecast based on a buildup, or consensus, of sales forecasts through the firm’s own sales channels

49
Q

Average Tax Rate (ATR) =

A

Total tax paid / total taxable income

50
Q

Marginal Tax Rate

A

the amount of tax that will be due on the next dollar of taxable income earned

51
Q

OCF =

A

EBIT (earnings before tax - Dep.) + Dep. - Tax

52
Q

NWC =

A

Current assets - current liabilities

53
Q

Cash Flows from Assets (CFFA) =

A

OC - Capx (FA1 - FA0 + Dep.) - Change in NWC

54
Q

Cash Sources

A

assets decrease, liability and equity increase

55
Q

Cash Uses

A

assets increase, liability and equity decrease

56
Q

Pro Forma Statements

A

projected or forecasted income states and balance sheets

57
Q

Percent-of-Sales Method

A

A simple method for developing the pro forma income statement; it forecasts sales and then expresses the various income statement items as percentages of projected sales

FNCE (3 decks)

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